Definitely it produces moral hazard effects by reducing their labour efforts. In addition, it causes negative influence in marketplace since family can afford to purchase daily essentials for high price due to availability of remitted money, purchase luxury goods, and unnecessary goods for them which in turn cause price hike, and devaluation of money. 

The effect of remittances on developing countries have been real. It is not necessary to map dollars remitted to GDP aggregates to calculate its impact. It is sufficient only to map these funds into sectors of the economy. Then their effects on output can be determined via an Input-Output analysis, which in turn can be used for planning and growth analyses. [See the article: THE DEVELOPMENT IMPACT OF REMITTANCES ON GUYANA'S ECONOMY by Debra Roberts: Social and Economic Studies, Vol. 58, No. 3/4 (September/December 2009), pp. 199-225 on how remittances can be sourced to industries, creating real effects.] You are right: some moral hazard effects are involved.

Do not forget a kind of "Dutch disease". Remittances may be so high (in some countries they are a large part of the good exports figure, for example) than can push up the value of the currency. reducing the foreign competitiveness of other sectors.

The impact of remittances on families remaining in the sending country is "easily" computable. Similarly, it is not very difficult to identify the Dutch disease, but how we can concretely measure moral hazard? What are the channels thru remittances impact the labour in home country?

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Lets look at the nature of remittances, it is basically countercyclical and an unrequited  transfer, which means it is a transfer  without any counterparty,  the recipient does not need to work to earn it or give anything back. Where the inflow is consistent, there is a tendency it would promote dependence as income level is maintained and or increase without additional effort (work). . In countries where remittances is mostly for consumption, the lack of economic activity eliminates the multiplier effect  in the  economy, as contribution of labour  drops. This therefore would promote dependency.  

The argument about remittances having a moral hazard and dependency effect is pretty old and is summarized in this World Bank survey paper:

http://www.ellerman.org/migration-and-development/

Keep in mind that many recipients of remittances are indeed dependent ... elderly parents, disabled, young children ... so for them, dependency is a good and natural thing. In situations where governments do not provide comprehensive social protection for such people, private remittances may be all that stands between them and destitution. Their spending of remittance income can have both investment effects, especially in human capital through the education, nutrition and health of children; and "multiplier" effects as the funds are spent on local goods and services. These can have longer term positive growth effects for the country as a whole.

Thank you David for the reference.

I do not agree with Terri. Because what you say is not always true. Certainly there are proven benefits of remittances (poverty reduction, access to education, among others). But do not forget the curse associated with remittances. The bulk of remittances goes to consumption. If the government does not set mechanisms to direct these remittances towards productive investissment, their effects are neutral or even negative.

Dear all, I think the quest for governments is to provide incentives to direct part of remittances to domestic investments; I think several European transition countries (e.g. Moldova, Romania, Poland?) are using this kind of policy tools. Another issue is usage of indirect taxation and transfers to hhds to spread the welfare gain to households that do not reveice remittances. Lower labor supply due  to increased reservation wage could be counteracted by more liberal rules for in-migration (which is often not very popular).

My knowledge is in a survey and model:Worker remittances and government behaviour in the receiving countries

Thomas H.W. Ziesemer

Eastern Journal of European Studies

The impact of the credit crisis on poor developing countries: Growth, worker remittances, accumulation and migration

Thomas H.W. Ziesemer

Economic Modelling

Worker Remittances and Growth: The Physical and Human Capital Channels

Thomas H.W. Ziesemer

Journal of Economics and Statistics (Jahrbuecher f...

Worker remittances, migration, accumulation and growth in poor developing countries: Survey and analysis of direct and indirect effects

Thomas H.W. Ziesemer

Economic Modelling 

Thank you very much Thomas for these interesting references.

I will read them carefully. Can you please send me your paper entiteled"A permanent effect of temporary immigration on economic growth" .

 I’m trying to complete a paper on the same field within different methodological framework (i.e., by carrying out news econometric methods) . I will send you my paper when finished... Thanks in advance.

I agree with Terri Raney. But private remittances from high earning migrants are for investment purposes.  However, this need to be verified by a case study. 

Remittance is the transfer of money from a worker to his home country.

Remittances inflows may finance investment in human capital, smooth consumption and have multiplier effects through increased household expenditures. It can also increase investments by alleviating credit constraints in developing countries, and thereby positively affect economic growth

Remittances can increase the well-being of receiving households by smoothing consumption and improving living conditions. Remittances can facilitate the accumulation of human capital by making possible improved sanitary conditions, healthier life styles, proper healthcare, and greater educational attainment.

Remittances are funds transferred from migrants to their home country. They are the private savings of workers and families that are spent in the home country for food, clothing, and other expenditures, and which drive the home economy.

Beyond poverty alleviation, when used to fund small businesses, education, or health, they can raise the level of physical and human capital – factors that contribute to long-run growth.

See the arguments developed in the attached paper.

Outside the immediate impacts of remittances on poverty alleviation, when used to fund undersized enterprises, education, or health, they can boost the level of physical and human capital – elements that contribute to long-run growth